30 October 2015 | By Dr Laura Cohen & Tom Reynolds Community, Opinion

What the living wage means for business

Like many other industries up and down the UK, ceramics manufacturers are evaluating the effects of the national living wage – and the huge business changes required to meet it.

The debate on the living wage is treated as a binary issue by its main protagonists in Westminster, the media, and Twittersphere. You are either virtuous and behind paying a decent hourly wage or allied with avaricious fat cats hell-bent on putting profits over people.

In reality, there is a wide spectrum of views in industry and those positions are rooted in businesses’ calculation about what the policy means for their ongoing operation. The gamut of viewpoints held by British Ceramic Confederation member companies is, we believe, a microcosm of the diversity of opinion in broader UK industry.

Members recognise that maintaining wages at a level which provide workers with a decent standard of living is an issue of dignity. Many firms (even those now subsidiaries of global companies) have their roots in family businesses in local communities. Many retain a paternalistic culture where they genuinely care for their employees.

Some members recognise that to pay the living wage, they will need to improve productivity. This means upskilling existing workers and / or capital expenditure – and while this is a good thing – some companies will require more time to manage difficult transitions in the way they work.   

Some companies pay well above the living wage through shift payments and / or pay enhancements based on output.  Our members value their relationship with trade unions – and work with them will be needed to unravel current, long-established wage structures that suited both employer and employee, to develop compliant terms and conditions that do not remove the performance incentive.

Other companies report it will be difficult to maintain current pay differentials between the skills levels in their workforce, possibly creating a disincentive for career progression and certainly a sticking point for labour relations. Employers who operate shifts will potentially lose employees to other non-shift based organisations if pay differentials are reduced.

Real concerns

Most uncomfortably, a significant minority of our members will be put in a very precarious position by the introduction of a living wage. This position is too often dismissed in the debate with the common refrains of “that’s what you said about the minimum wage” and “it’s just business scaremongering”. As a trade association we were somewhat reticent about making this argument but following our analysis of productivity and ‘sales per employee’, we realise this is a real concern.

There may be limited funds available for capital expenditure and limits to how much training and up-skilling is possible. The combination of the living wage implemented over a short period of time coupled with other issues, such as increasing UK energy regulatory costs (we are an energy intensive and labour intensive sector) and lack of level playing field with overseas competitors, means a number of our members will simply be put out of business.    

None of the ceramics industry perspectives across this spectrum is about politicking or peddling an ideological position. An overly simple dualistic argument about the living wage is unhelpful and disingenuous – there are many nuances which deserve discussion.

Huge business changes are required to implement the living wage without large scale job losses. The government must offer more support, especially a longer implementation period, to smooth this transition. Yes the living wage is about dignity, but so is job security.